For the growth of any size business, travel expenses are unavoidable. Hence, a travel policy is needed for companies to determine what are acceptable business travel expenses or the contrary. Without a formal policy, keeping track of employee spending can be overwhelming. This article details what are work related travel expenses, the importance of travel and expense management, and some of the common challenges that come with it.
Basics of corporate travel expenses
Travel expenses can be defined as any cost associated with traveling for the purpose of conducting business-related activities. The business generally deducts travel expenses when employees incur costs while traveling away from home, specifically for business purposes. Those purposes can be business conferences or meetings.
Generally, work-related travel expenses include:
Accommodation booking or lodging cost
Transportation costs, including tickets for plane, train, bus, rental cars, gas fees
Entertainment costs that include payment at restaurants, for tickets at shows or events
Per diems that refer to any country-specific allowances for food, accommodation, and mileage
Expenses on electronics and other essential gadgets like computers, phones, tablets
Usually, the payment towards business expenses is initially made by the employee, and then they submit an expense claim to their employer for reimbursement.
Work related travel expense management
Travel and expense (T&E) management is the process of documenting and processing company business expenses for tax deduction purposes and cutting down on the traveling costs of the employees through analysis. Legally, it can be defined as whatever counts as tax-deductible expenses depending on the country the business is based in.
Travel and expense (T&E) policy
Companies formulate travel and expense policies for easier management of business travel expenses. This is to regulate how team members spend company funds on business trips.
T&E policies should be inclusive of all the scenarios where employees perform work-related activities outside the office. A well-laid T&E policy clearly defines what qualifies to be essential employee spending and helps finance teams streamline expense reporting and approvals.
A T&E policy of a company should include the following:
Approval and rejection standards for the travel booking
The process of expense reimbursement
Accepted flights and trains
Guidelines for ground transport like rental cars, ride-sharing services, and personal car usage
Challenges of travel and expense management
Reporting and reconciliation of expenses are often tedious and laborious tasks for both employees and finance teams. In the absence of a clear process and infrastructure, it becomes impossible to keep track of paperwork as a company grows.
Ineffective travel and expense processes make it difficult for teams to track their expenditure and even harder to track purchases. The most common challenges faced by companies with ineffective or outdated travel and expense processes are:
Restricted access to funds: In many companies, only a single corporate card is used by the whole team. With shared company cards, it gets difficult to track expenses and the card can also be lost when they’re being physically passed around from employee to employee. This has severe consequences, especially when team members need to spend quickly.
High-security risk: General methods of payment don’t attribute payments to a unique purchaser. It gets challenging to track fraudulent spending, leaving companies vulnerable to financial risks whenever company payment methods are used.
Loss of spending visibility: A weak finance team always struggles with healthy budgeting and balancing cash flow. This has an effect on achieving scale company growth. An efficient finance team should always be aware of the company’s spending – when, where, and why.
Delay in reimbursements: In the absence of automation, the expense reporting and approvals involves a lot of time and delays. The manual processes can be a waste of time for both employees and finance teams.
Chaotic bookkeeping: Inefficient travel and expense management makes it difficult to know what counts as eligible expenses. The manual process of sorting of employees’ spending makes it difficult to close the bookkeeping at the end of the month.
Keys to a better travel and expense management
Even though there are some challenges in travel expense management, but every business is different. To decide on the best way to manage employee spending depends on your company’s structure and culture. In addition to a good travel expense policy, following the below practices will make any travel and expense process more effective and efficient, irrespective of the nature of business.
Use of a travel expense policy template
Following simple spending rules
Centralizing Travel and Expense management
Following a paperless policy
Regular updation of Travel and Expense policy
Hence it is clear that for a foundation for strong work related travel expense management, a strong expense policy supported by comprehensive software solutions is important.
A well-managed work-related travel expense process eliminates time-consuming reimbursements by preventing employees from having to spend out-of-pocket in the first place.